Yes, brokerages sell index funds, and most major ones carry them

A brokerage is a company that holds your money and executes trades on your behalf. Nearly every brokerage — whether it's Fidelity, Vanguard, Charles Schwab, E*TRADE, or a smaller regional firm — offers index funds as part of their product lineup. You open an account with the brokerage, deposit money, and then buy index funds through their platform.

The key distinction is that the brokerage itself does not create most index funds. Instead, brokerages act as distributors. They partner with fund companies (often the same companies that create the index funds) to make those funds available to you. For example, Fidelity offers index funds it created under its own name, but it also offers index funds created by Vanguard and other fund companies. You buy whichever one you want through Fidelity's platform.

Some brokerages do create their own index funds. Vanguard, Fidelity, and Schwab all manufacture index funds and also sell them through their own brokerage platforms. This means they control both sides of the transaction — they create the fund and they sell it to you. Other brokerages, like some smaller or discount brokers, may carry index funds from multiple manufacturers but do not create their own.

Key Takeaways

  • You buy index funds through a brokerage account, which you open by depositing money and providing basic personal information.
  • Most brokerages carry index funds from multiple fund companies, so you can compare options and choose the one with the lowest fee before you buy.
  • Some brokerages create their own index funds (Vanguard, Fidelity, Schwab); others only distribute index funds made by other companies.
  • Buying an index fund through a brokerage typically costs nothing in commission, though the fund itself charges an annual fee called an expense ratio.

How you actually buy an index fund through a brokerage

The process is straightforward. You open an account with a brokerage by providing your name, Social Security number, address, and employment information. You then transfer money into that account (by bank transfer, check, or wire). Once the money settles — usually one to three business days — you log into the brokerage's website or app and search for the index fund you want to buy.

When you find the fund, you enter the dollar amount or number of shares you want to purchase, and the brokerage executes the trade. There is no commission charged by the brokerage for buying most index funds today. You own the fund immediately, and the brokerage holds it in your account. You can sell it anytime during market hours, and the money returns to your brokerage account.

The brokerage makes money not from commissions on index fund purchases, but from other sources: interest on cash balances, advisory fees if you use their wealth management services, or fees on other products like options trading or margin accounts. This is why most brokerages offer commission-free index fund trading — it is not their primary revenue stream.

What fees you actually pay when you buy an index fund

The brokerage does not charge you to buy the index fund, but the fund itself charges an annual fee. This fee is called the expense ratio, and it is deducted automatically from the fund's value each year. It is expressed as a percentage — for example, 0.03% per year on a low-cost S&P 500 index fund.

The expense ratio pays for the fund company's costs: the people who manage the fund's holdings, the computers that track the index, the legal and compliance staff, and the marketing. Because index funds simply track an index rather than employ active managers making individual stock picks, their expense ratios are much lower than actively managed funds. A typical S&P 500 index fund costs between 0.03% and 0.20% per year, depending on the fund company.

You do not write a separate check for the expense ratio. It is deducted from the fund's total value, so your share price reflects it. If you own $10,000 in an index fund with a 0.10% expense ratio, you pay about $10 per year in fees, taken automatically. Over time, this difference compounds: a fund charging 0.03% will significantly outpace one charging 0.50% over decades, even if both track the same index.

Differences between brokerages and what they offer

Not all brokerages carry the same index funds. Vanguard, for example, primarily sells Vanguard-branded index funds through its brokerage, though it does offer some funds from other companies. Fidelity carries a wide range of index funds from Fidelity, Vanguard, iShares, and others. Charles Schwab carries index funds from Schwab, Vanguard, iShares, and more.

The practical difference is choice and cost. If you open an account at Fidelity, you can compare a Fidelity S&P 500 index fund (expense ratio 0.015%) against a Vanguard S&P 500 index fund (expense ratio 0.03%) and choose the cheaper one. If you open an account at Vanguard, you have fewer options for that particular index, but Vanguard's funds are often priced competitively. Smaller brokerages may carry fewer index funds overall, limiting your options.

Brokerages also differ in account types. All offer standard taxable brokerage accounts. Most also offer IRAs (individual retirement accounts), which provide tax advantages. Some offer 401(k) rollovers, custodial accounts for minors, or other specialized accounts. If you plan to hold index funds in a retirement account, confirm that the brokerage you choose offers that account type and carries the index funds you want within it.

Index funds versus ETFs: both are sold by brokerages

Brokerages sell two types of index products: mutual funds and exchange-traded funds (ETFs). Both track an index, both have low expense ratios, and both are bought through a brokerage. The main differences are technical and rarely matter for a long-term investor.

A mutual fund is priced once per day, after the market closes. You place an order during the day, but you do not know the exact price until the market closes. You can set up automatic monthly investments into a mutual fund, and the brokerage will buy shares on a set date each month.

An ETF trades like a stock throughout the day, so you see the price in real time and can buy or sell at any moment. ETFs are often cheaper to hold (lower expense ratios), but you pay a small bid-ask spread (the difference between the buy and sell price) when you trade them. For most index fund investors, the choice between a mutual fund and an ETF version of the same index makes little practical difference. Pick whichever the brokerage offers at the lowest cost.

How to compare index funds across brokerages

If you are deciding which brokerage to use, look up the expense ratio for the specific index fund you want to buy at each brokerage. A fund tracking the S&P 500 at Brokerage A might cost 0.03% per year, while the same index at Brokerage B costs 0.10%. Over 30 years, that difference compounds significantly.

You can find expense ratios on the brokerage's website by searching for the fund by name or ticker symbol. The fund's fact sheet or prospectus will list the expense ratio clearly. You can also use comparison tools like Morningstar or the fund company's own website to see which brokerages carry which funds and at what cost.

Beyond cost, consider whether the brokerage offers the account type you need (taxable account, IRA, etc.), whether it has a user-friendly platform, and whether it offers customer support if you have questions. Most major brokerages are solid choices; the differences are usually small. Starting with a well-known brokerage like Fidelity, Vanguard, or Schwab is a safe approach.

Frequently Asked Questions

Do I have to use the brokerage's own index funds, or can I buy from other fund companies?

It depends on the brokerage. Vanguard primarily sells Vanguard funds. Fidelity and Schwab sell index funds from multiple companies, including competitors. If you want maximum choice, pick a brokerage known for carrying a wide range of fund companies. If you are comfortable with one fund company's offerings, you can open an account directly with that company's brokerage.

Can I buy index funds without a brokerage?

No. You need a brokerage account to buy any publicly traded investment, including index funds. You cannot buy them directly from the fund company without going through a brokerage. The brokerage is the intermediary that executes the trade and holds the investment for you.

Will the brokerage charge me a commission when I sell an index fund?

No. Like buying, selling index funds through a brokerage is commission-free at virtually all major brokerages today. You may owe capital gains taxes if the fund has grown in value, but that is a tax matter, not a brokerage fee.

What happens if the brokerage goes out of business?

Your investments are protected. Brokerages are required to hold customer assets separately from their own money, and accounts are insured by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account. If a brokerage fails, your index funds are returned to you or transferred to another brokerage automatically.

Can I hold index funds in a retirement account through a brokerage?

Yes. Most brokerages offer IRAs and other retirement accounts. You open the retirement account, deposit money, and buy index funds within it just as you would in a taxable account. The tax advantages of the retirement account apply to whatever investments you hold inside it, including index funds.